Category: Markets & Regulation

A UK Recovery Program: Go Keynesian (Part 2)

by John Weeks

The latest statistics show that real household earnings in Britain fell by 3.5% over the last year (The Guardian24 November 2011), a decline unprecedented in peacetime.  What can be done to stop this unfolding disaster? While the private sector is dangerously in debt (“over-leveraged”), the public sector is not as I showed in my last article.  On the contrary, by any accepted financial measure, the UK government is under-indebted, the ratio of net debt to GDP, debt service capacity or marginal borrowing cost.

The solution to falling comes and the looming second recession is for the government to borrow and spend.  If that sounds like bad economics, it is only because the economics profession degenerated into free market metaphysics long ago, turning out reactionary propaganda against rational policy.

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The rise and fall of the ‘free market’

by David Hetherington

Ideas, like fashion, move in waves. A big idea will form, expand, dominate, and fade. Along the way it will accrue adherents and opponents, leaving a trailing wake of subsidiary ideas.

The last century has seen the rise and fall of communism, fascism, and socialism. Democracy has proven more enduring, still expanding if not dominating.

Yet the idea closest to the inflection point between domination and fade is the ‘free market’, the most influential concept in political economy over the past 40 years. Outlined in its modern form by the Austrian school of economists and expanded by Milton Friedman, the free market was the bedrock of the Thatcher/Reagan reforms. It defined the political orthodoxy for both right and left until the financial crash of 2008.

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A Preview of the November 11-13, 2011 APEC Leaders’ Meeting

by Joshua Meltzer
The United States is this year’s host of the Asia-Pacific Economic Cooperation (APEC) Summit later this week. APEC leaders will meet in Hawaii, accompanied by their foreign and trade ministers and a host of senior officials. The United States will attend APEC with some important trade policy outcomes under its belt already, most significantly the passage of the Korea-U.S. free trade agreement (FTA), Columbia-U.S. FTA and Panama-U.S. FTA. Particularly, the Korea-U.S. FTA and progress in the Trans-Pacific Partnership (TPP) negotiations will help the United States show its serious commitment to pursuing international agreements that liberalize trade and investment in the Asia Pacific region.
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Why Believe In Keynesian Models?

by Paul Krugman

A correspondent asks a good question: what evidence makes me believe that Keynesian economics is broadly right, given the relative absence of experience with large fiscal stimulus programs?

I’d answer that question with several points.

First, we’re talking about a model, not just a prediction about the impact of spending increases. So you can ask about the ancillary predictions of that model as opposed to rival models. Anti-Keynesians assured us that budget deficits would send interest rates soaring; Keynesian analysis said they’d stay low as long as the economy remained far from full employment. Guess who was right?

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Milton Friedman’s Magical Thinking

by Dani Rodrik

Next year will mark the 100th anniversary of Milton Friedman’s birth. Friedman was one of the twentieth century’s leading economists, a Nobel Prize winner who made notable contributions to monetary policy and consumption theory. But he will be remembered primarily as the visionary who provided the intellectual firepower for free-market enthusiasts during the second half of the century, and as the éminence grise behind the dramatic shift in the economic policies that took place after 1980.

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